Glenn C. Bailey, Lillian S. Bailey, and Inez N. Bailey v. United States
Opinion
Opinion
Browning, J.
The question presented is whether taxpayers who intended to achieve a non-taxablc corporate liquidation under section 112(b) (7) of the Internal Revenue Code of 1939 entertained the “view” which would have rendered the corporation “collapsible” within the meaning of 1939 Code section 117(m). The district court held that they did, and we affirm.
The taxpayers were engaged in subdividing real property and building and selling homes. They purchased an unimproved parcel in Santa Ana, California, in November 1951, and by July 31, 1952, had constructed one hundred and twenty low-priced homes on the property.
The one hundred and twenty units were divided into two sets of sixty houses each. Sale of the first sixty began in March 1952, and was completed by February 1954. Gain resulting from these sales was reported as ordinary income, and is not involved here.
The taxpayers encountered difficulty in financing the second sixty houses. Their accountant agreed to loan them the necessary funds, but insisted that they form a corporation, transfer the sixty houses to it, and pledge its stock as security for the loan.